How Bitcoin plunge could trigger a financial crash: ‘Sickening scenarios’ are near, experts say – and that’s not the only reason you should be worried, reveals HUGO DUNCAN… no wonder I’m told it’s ‘the Titanic’

Beloved of drug dealers and money launderers, it is the world’s most famous cryptocurrency, and splits opinion like no other investment.

Now more so than ever.

Bitcoin has lost more than half its value since peaking at $126,210 in October, sinking as low as $60,075 and wiping out all the gains made under Donald Trump, the self-styled ‘crypto President’.

The 20 per cent slump on Wednesday and Thursday alone was one of the sharpest and most devastating in crypto market history.

And when prices fall this fast, fortunes can vanish overnight, with those investors who borrowed money to buy crypto facing financial ruin.

None other than Michael Burry – the US investor who predicted the 2008 sub-prime mortgage meltdown, played by Christian Bale in The Big Short – believes the plunge could become a ‘death spiral’ as companies and individuals who have piled in are burnt.

Further falls in the price of Bitcoin, he says, could put such strain on the balance sheets of major holders that they are forced to sell crypto assets across the board – triggering huge value destruction as prices tumble.

‘Sickening scenarios have now come within reach,’ warns Burry.

This has raised fears that the whole house of cards could now collapse – with devastating consequences for pensions, savings, other investments and the wider economy.

At the centre of all this mayhem is a company called Strategy.

Formerly known as MicroStrategy, it is the brainchild of Bitcoin evangelist Michael Saylor who turned a run-of-the mill US software firm into what has essentially become a turbo-charged bet on the flagship cryptocurrency.

Strategy buys Bitcoin with borrowed money and capital raised off the back of its own share price in the belief that both will keep on rising in value.

It is now the largest corporate holder in the world of Bitcoins, owning more than 713,000 of the digital tokens.

But after a spectacular run both Bitcoin and to an even greater extent Strategy’s share price are in freefall, prompting fears that the crypto bubble has finally burst.

The latest slide in Strategy’s share price – it now three-quarters lower than its peak a year ago – came after the company revealed losses had ballooned from $671million to $12.4billion in the three months to December.

Worse, for the first time since 2023 Bitcoin’s price has dropped below the average of $76,052 that Strategy paid to amass its massive stockpile of tokens for a total outlay of $54billion.

The holding – which would have been worth $90billion when Bitcoin was at its peak – is now worth just $47billion.

Critics – and there are plenty of them – are once again sounding the alarm.

Burry warns that if Bitcoin falls another 10 per cent, Strategy would ‘find capital markets essentially closed’.

Further falls would push Bitcoin miners toward bankruptcy, he adds, forcing them to sell their reserves, flooding the market with a fresh supply of tokens at a time when buyers may be reluctant to swoop.

One of the biggest losers in the rout is Saylor, who once made front page news after losing $6billion in a day.

He owns almost a tenth of Strategy, so his own considerable personal fortune is also on the line.

Ever the optimist, he still reckons Bitcoin’s best days lie ahead.

And for now, experts say there is no immediate risk of Strategy going bust.

They note that while its Bitcoin stash has dwindled to $47billion, that’s still higher than Strategy’s stock market value of $31.4billion.

That means if Saylor sold all the company’s Bitcoin holdings, there would still be enough left to pay back shareholders and its debt.

But his experiment is under strain like never before.

Ordinary punters who bought in when Bitcoin was riding high at over $100,000 are also feeling the pain.

Some may have been caught up in the wave of euphoria that swept through this murky corner of the financial system with the return of Trump to the White House.

He did, after all, pledge to make America ‘the crypto capital of the planet’ with a new light-touch regulatory regime bringing it in from the shadows to the heart of Wall Street and indeed Main Street.

Bitcoin gained 75 per cent in the 11 months following Trump’s election victory in November 2024 – spurred on by the introduction of so-called Exchange Traded Funds (ETFs) that gave regular investors an easy way to buy-in. All those gains have now been wiped out.

‘Retail investors who piled into the Trump administration’s promised crypto paradise are now learning an expensive lesson in market gravity,’ notes financial news agency Bloomberg.

Many will now be wondering if Trump was in fact right when he previously described Bitcoin as a ‘scam’.

Among them may well be the 8 per cent of UK adults who own crypto – or some 4.5million people – according to the Financial Conduct Authority.

‘Having a pro-crypto administration doesn’t magically eliminate the category’s downside volatility, and any investor who expected otherwise is learning that lesson the hard way,’ says Nate Geraci, president of NovaDius Wealth Management.

‘Like many other asset classes, crypto is subject to inevitable periods of sharp drawdowns — something neither the White House nor regulators can prevent.’

To make matters worse, the slump in Bitcoin comes at a febrile time on financial markets, with faith in the US dollar rattled by Trump’s erratic trade and foreign policies.

Gold, whose status as a ‘safe haven’ in times of trouble was turbocharged by central bank buying and fear of missing out (FOMO) among other investors, scaled astonishing new peaks as recently as last week only to crash more than 20 per cent in a matter of days.

Silver, which went along for the ride with even more impressive gains, lost nearly half its value in a week.

And on the stock markets, plans by just four tech giants – Amazon, Alphabet, Meta and Microsoft – to invest almost £500billion in artificial intelligence this year alone have fuelled fears the AI bubble is also about to burst.

Throw in a rout in software and data stocks as AI pioneers such as Anthropic rollout new tools that could disrupt and destroy the business models of dozens of blue-chip firms on both sides of the Atlantic, and talk of a system-wide crash crash is never far away.

All this at a time of terrifying global tensions, from Trump’s ambitions in Greenland and sabre-rattling with Iran to Russia’s ongoing war in Ukraine and China’s ever-present threat to Taiwan.

‘People are definitely going more defensive,’ says Brian Frank, president and portfolio manager at Frank Funds. ‘It’s more of like a shoot first and ask questions later type environment.’

Observers will have their own views on what, if anything, will be the trigger for a market meltdown that will tear through the savings and investments of ordinary Britons.

But the crypto sell-off puts Bitcoin centre-stage – and the warning signs are flashing as investors facing losses from one asset are forced to sell another to stay afloat.

Crypto’s true-believers say we have been here before, and Bitcoin has survived every brutal downturn seen so far, from the 80 per cent drop from late 2017 into 2018 and back-to-back crashes in 2021 and 2022 when pressure from regulators and the scandal at FTX shattered confidence.

On each occasion, Bitcoin has come back stronger, and some saw the most recent plunge as a buying opportunity, pushing the price back up to $67,000.

But doubts persist, with Deutsche Bank analyst Marion Laboure warning that ‘traditional investors are losing interest, and overall pessimism about crypto is growing’.

‘Finally this emperor is being revealed for what it is,’ adds Neil Wilson, an investor strategist at Saxo. ‘Investors have kind of lost patience with crypto – it’s not proving all it’s cracked up to be and the rally in gold, albeit with a significant pull back of its own, indicates where real sentiment is.’

Jacob King, founder of analytics firm SwanDesk, warns a loss of confidence means Bitcoin risks a ‘worst-case, totally catastrophic domino effect of cascading failures’ as retail investors rush for the exit and corporate buyers such as Strategy crumble under the weight of mounting losses.

‘The story of Bitcoin mirrors the Titanic,’ he says. ‘It was said to be unsinkable, but that was never true. You will see.’